On January 1 of the Current Year,Sarah and Bart Form

question 38

Multiple Choice

On January 1 of the current year,Sarah and Bart form an equal partnership.Sarah makes a cash contribution of $60,000 and a property contribution (adjusted basis of $160,000;fair market value of $140,000) in exchange for her interest in the partnership.Bart contributes property (adjusted basis of $120,000;fair market value of $200,000) in exchange for his partnership interest.Which of the following statements is true concerning the income tax results of this partnership formation?

• A)Sarah has a $200,000 tax basis for her partnership interest.
• B)The partnership has a $140,000 adjusted basis in the property contributed by Sarah.
• C)Bart recognizes an $80,000 gain on his property transfer.
• D)Bart has a $120,000 tax basis for his partnership interest.
• E)None of the statements is true.

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Definitions:

Completed Contract Method

An accounting technique used to defer all revenue, expense, and profit recognition until a contract is completed.

Accounting

The systematic recording, reporting, and analysis of financial transactions of a business.

Installment Sales

A sales method allowing customers to make payments over a period of time until the full price is paid.

Gross Profit

A company's total revenue minus its cost of goods sold, indicating the basic profitability of its products or services.